From the Morning Memo:

Gov. Andrew Cuomo’s top budget and tax officials on Monday unveiled the details of the administration’s plans to create a payroll tax and expand the charitable deduction, all as a workaround for a $10,000 cap on state and local deductions.

The tax would be optional, phased in over three years, subject employers to a 1.5 percent tax on payroll expenses and eventually grow to 5 percent. Business could opt in by Oct. 1 and it wold take effect by January 2019.

Budget officials insist the tax is revenue neutral. Business can still deduct the tax from their federal filing. At the same time, the state would create charitable foundations for health care and education contributions that can be deducted.

For now, top lawmakers in the Senate and Assembly are split.

“If we do nothing then those citizens of the state who itemize will be getting a big hit in their pockets,” said Assembly Speaker Carl Heastie.

Sen. John DeFrancisco, a Republican seeking the GOP nomination for governor, took the opposite view.

“It makes no sense all in my mind and it’s not going to work,” he said. “You’re still going to have to have an administration of income taxes because they’re not going away.”

In a statement, Senate Majority Leader John Flanagan said he wanted to focus on tax cuts in the immediate budget. Cuomo has proposed $1 billion in new surcharges in order to close a $4.4 billion deficit.

“Senate Republicans have already advanced a comprehensive plan to cut property taxes, cut income taxes, cut energy taxes, and cut taxes on retirement income, and to make the property tax cap permanent,” Flanagan said.

“While we are pleased that the Governor has followed the Senate’s lead in decoupling the state and federal tax codes to save New Yorkers $1.5 billion, it is also critical that we balance this year’s budget without the $1 billion in new taxes and fees proposed by the Governor. We should be cutting taxes, not raising them.”

High-tax states like New York are developing ways of working around the cap on deductions, but could hit a roadblock if the IRS closes loopholes the plans may be exploiting.

“It’s not that we’re not willing to pursue it,” said Assembly Majority Leader Joe Morelle, “but we don’t want to put taxpayers in the unenviable position of finding out that an alternative to doing this, turns out the federal government won’t allow it and then we put people in a worse position than when they started.”

For now, Cuomo’s top budget advisor says the proposals fall within the federal tax law passed in December.

“If they decide that they want to challenge these things, then we’ll have to deal with them at that level, but we have to purse these options because they are taking this money away from New Yorkers,” Budget Director Robert Mujica said.